Do I Have to Pay Tax on the Sale of My Home?

By Kendra Hopson

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A frequently asked question from our clients and friends, especially in this economic environment, is “do I have to pay tax on the sale of my home?” For most people, the answer is no.

The sale of your main home has a $250,000 gain exclusion for single filers, and $500,000 gain exclusion for married filing joint. To qualify for this exclusion, this must be your main home, not a rental property or your vacation house. You must have lived in this house for at least two of the last five years. You must not have used this exclusion on another home in the last two years.

To figure what you might owe, you must first determine cost basis. If you paid $200,000 for your home twenty years ago, made $50,000 of improvements and had $5,000 of closing costs, then your basis in the property is $255,000. If you are married and sell this house for $800,000, then the excludable capital gains are $500,000, and you will have to pay capital gains on the non-excludable $45,000 at your capital gains rate.

If I don’t owe anything, do I still need to report it? If you received a 1099-S, you need to report this on Schedule D on your tax return, even if you won’t owe anything.

There are a few exceptions to the exemption rule, such as work or health related moves. To read more, please see the IRS website.

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